Nfld. & Labrador

Don't give up on electricity as Muskrat Falls debt looms, says Dwight Ball

Premier Dwight Ball is renewing his pledge that energy rates will be affordable and predictable in the Muskrat Falls era, and is urging homeowners and businesses to not seek out alternative sources of energy.

Premier reaffirms his pledge for affordable, predictable rates despite billions in project debt

Premier Dwight Ball is urging residential and business owners in Newfoundland and Labrador not to give up on electricty, saying every effort is being made to ensure rates are affordable and predictable. (Danny Arsenault/CBC)

Premier Dwight Ball is renewing his pledge that energy rates will be affordable and predictable in the Muskrat Falls era, and is urging homeowners and businesses to not seek out alternative sources of energy.

He says a widespread movement away from electricity would "make a very bad situation much worse" because it would reduce demand and seriously complicate efforts to cope with the billions in Muskrat Falls debt.

"Our objective right now is to keep the demand on electricity. Electrify whatever we can in this province," Ball told reporters.

Some of the lowest rates

Ball is trying to allay concerns that the $12.7 billion Muskrat Falls project will result in soaring energy rates when debt repayment begins in 2021, a scenario he said the province simply cannot allow.
The spillway at Muskrat Falls in pictured in this spring 2018 photo. (Eddy Kennedy/CBC)

Newfoundland and Labrador Hydro customers pay some of the lowest rates in the country, he said, and that cannot change.

"Can you imagine a day when ratepayers in this province would be exposed to 22 cent power? Nearly 23 cent power? They couldn't do it. So we needed to reassure people," Ball said.

The province's energy corporation, Nalcor Energy, has borrowed nearly $8 billion to finance construction, and the provincial government also has more than $3 billion in equity in the Muskrat Falls project in Labrador, which includes an 824-megawatt hydroelectric generating station in Labrador and 1,100 kilometres of transmission lines to Soldiers Pond, just outside St. John's.

The project is now 90-plus per cent complete, with project costs nearly doubling from the time it was sanctioned by a previous Progressive Conservative government in 2012.

Debt repayment to begin in 2021

Hydro, which is a subsidiary of Nalcor, will have to come up with more than $800 million annually to finance that debt, beginning in less than three years.

Under the terms of a loan guarantee by the federal government, Nalcor's debt must be recovered from electricity ratepayers, a scenario that would require a doubling of the current rates, and seriously cripple the economy and burden Hydro customers.

That has caused widespread angst in the province, and Ball said he is routinely approached by people who say they are "looking at options of getting off electricity."

We also will need to give the PUB the time that is required to do the proper analysis, reach out to the experts in rate design and finding efficiencies and so on.- Premier Dwight Ball

So in a bid to quell this unease, Ball surprised the province earlier this month by saying ratepayers would be sheltered from the financial burden of Muskrat Falls, and the Public Utilities Board would be tasked to set rates that are both affordable and predictable.

And, he added, "we are not looking at increasing taxes for people in Newfoundland and Labrador."

Ball said he is now able to offer such a pledge because the project is mostly complete, and the financial picture is much clearer.

A recent photo of the Muskrat Falls spillway and intake on the Churchill River, near Happy Valley-Goose Bay, Labrador. (Nalcor Energy)

"We needed to get closer to the end of the project so you actually knew with some confidence what those numbers would look like," he said.

"We know we're there now. We also will need to give the PUB the time that is required to do the proper analysis, reach out to the experts in rate design and finding efficiencies and so on," he said.

A promise with no concrete plan

What's less certain is how Ball plans to fulfil his promise.

Hydro will generate revenue from the sale of Muskrat Falls power to its Newfoundland and Labrador customers, from the recall of between 200 and 300 megawatts of cheaper electricity from the Upper Churchill project, and from the sale of surplus power from Muskrat Falls.

Muskrat Falls will also displace expensive oil-fired electricity at the Holyrood generating station, and the province is counting on revenue from new economic growth through efforts such as its Way Forward strategy.

That still leaves a massive gap of hundreds of millions in debt payments annually, and Ball refuses to give any details, saying only that experts inside government and at Nalcor are exploring options to bridge that gap.

Changes to the federal loan guarantee will be required in order to modify repayment terms, and Ball confirmed "there is financing options."

Others have suggested earmarking provincial government revenues from offshore oil production to the Muskrat Falls debt, but Ball refuses to engage when asked direct questions about such an option.

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